Industry A has four firms that each control 25 percent of the market. Industry B has six firms, where one firm controls 50 percent of the market and the other five firms control 10 percent of the market each. According to the HHI, which industry is more concentrated?

Question

Quizplus · Accepted Answer

The Herfindahl-Hirschman Index (HHI) is calculated by summing the squares of the market shares of all firms in the industry. For Industry A, HHI = 4*(25^2) = 2500. For Industry B, HHI = 50^2 + 5*(10^2) = 2500 + 500 = 3000. Therefore, Industry B is more concentrated.

Industry a Has Four Firms That Each Control 25 Percent